How Do Voters Evaluate the Economy?

May 4, 2012

Visiting Scholar Wendy Rahn and Philip Chen of University of Minnesota have published a working paper on how voters perceive economic conditions. This is, of course, a crucial question in the midst of an election year, when many assume that that the state of the economy may influence voters' electoral choices. Traditionally, political scientists considering economic voter theories have analyzed three major factors—inflation, unemployment, or economic growth. Rahn and Chen ask whether these models should now also incorporate data on household net worth or the significance of stock assets. Here is an excerpt from the paper's abstract:

American households are buffeted by these macroeconomic forces to different degrees, and when conditions in these various spheres diverge, as in the aftermath of the Great Recession, groups that are differentially affected may respond politically in ways that generate new lines of cleavage that add complexity to our traditional economic voting models. Using monthly survey data from the Michigan Survey of Consumers over the period 1992 to 2011, we examine the impact of unemployment, inflation, house and stock prices, and real income growth on people’s retrospective assessments of family financial well-being. Our innovation is to compare the effects of these variables for different groups of households defined by their asset-holding status: investors (directly or indirectly) in the stock market, homeowners without risky financial assets, and renters. We indeed find that people respond to aggregate economic conditions in heterogeneous ways.